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WASHINGTON (Reuters) - A global banking trade group on Monday questioned the United Kingdom's plans for a top-down approach to seizing failing global financial institutions, saying there may not be enough capital at the holding company level to absorb losses.

The comments from the Global Financial Markets Association came after the Bank of England and the U.S. Federal Deposit Insurance Corp outlined their plans to seize control of the parent firms of large banking groups on the brink of collapse.

The approaches are focused on assigning losses to shareholders and subordinated debt holders throughout the group. But in the case of UK financial companies, much of the capital and debt is issued at the subsidiary level.

Simon Lewis, chief executive of the Global Financial Markets Association, said single point of entry resolution may not be appropriate where there is not enough capital held at the holding company level.

"Resolution strategies therefore need to be tailored to the circumstances of each institution and the development of firm-specific cross-border cooperation agreements will be a key component to achieve this," he said in a statement issued after the FDIC and the Bank paper was released on Sunday night.

The two regulators said both the U.S. and UK approaches are viable and reduce risks to financial stability. But more work is needed on the UK side to ensure that losses can be adequately absorbed, regulators for both countries said on Sunday.

The plans are aimed at avoiding the kinds of cataclysmic banking failures and massive taxpayer bailouts that marked the 2007-2009 financial crisis.

"The FDIC and the Bank of England have developed resolution strategies that take control of the failed company at the top of the group, impose losses on shareholders and unsecured creditors - not on taxpayers — and remove top management and hold them accountable for their action," they said in the paper.

The new authority to seize and resolve so-called global systemically important financial institutions came in the United States from the 2010 Dodd-Frank financial reform law, and in Britain from the anticipated approval by early 2013 of the European Union Recovery and Resolution Directive.

Both the U.S. and UK approaches ensure continuity of all critical services of the failing firms and minimize cross-border contagion, the regulators said.

In both approaches, equity holders would likely be wiped out, and unsecured debt holders would face write downs and conversion of at least part of their holdings to new equity to recapitalize the institutions as part of the restructuring.

In the United States, this is a relatively straightforward process, because in most large financial institutions, the capital structure is largely made up of equity and unsecured debt issued at the holding company level. There is often limited debt issued directly by operating subsidiaries that may be the source of the financial distress that brings down the company.

In the UK, however, financial holding companies at the top of the group do not typically issue much debt; more tends to be issued at the subsidiary level.

"For a top-down approach to work, there must be sufficient loss-absorbing capacity available at the top of the group to absorb losses sustained within operational subsidiaries," the regulators said.

UK companies could restructure to issue more debt at the holding company level, they said. UK authorities also need to find better ways of assigning subsidiary losses to unsecured creditors throughout the group.

A statutory tool to "bail in" such losses proposed under the EU directive would need to prevent counterparties from terminating dealings with the failing firm as it is seized.

Banking officials said privately they would prefer regulators from all countries working together on a common framework rather than some countries going it alone.

Thomas Huertas, a former top UK banking supervisor and now with Ernst & Young, said the initiative will act as a catalyst for others as the two countries alone cannot resolve all outstanding issues.

"The joint statement falls short of being an agreement," Huertas said.

Iain Coke, head of financial services at ICAEW accounting body in London, said a holding company approach might create a bigger potential bill for taxpayers by relating to worldwide operations of a bank rather than national subsidiaries.

In the 2008 crisis, the sudden pullout by Wall Street counterparties from some large firms helped accelerate their failure and magnified losses later borne by taxpayers.

Valuing a failed financial firm's assets is also critical to writing down losses and determining which classes of creditors will face conversion to new equity. Both the United States and United Kingdom are working on ways to develop a credible valuation process that can be applied quickly and flexibly.